U.S. rates futures dip before Fed meeting

November 1, 2016 9:14 AM EDT

A police officer keeps watch in front of the U.S. Federal Reserve in Washington October 12, 2016. REUTERS/Kevin Lamarque


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NEW YORK (Reuters) - Most U.S. short-term interest rates futures slipped on Tuesday in advance of the Federal Reserve's two-day meeting at which policy-makers are widely expected to leave interest rates unchanged.

Uncertainty about market reactions on the outcome of the Nov. 8 U.S. presidential election, together with recent mixed readings on the economy, will likely make Fed policy-makers hold off on a rate increase at this meeting, analysts said.

However, there seems to be enough strength in the labor market for the Federal Open Market Committee (FOMC), the central bank's policy-setting group, to make a move in December, they said.

"We expect the November FOMC meeting to be uneventful and no strong signal for December action since current market pricing is already consistent with action before year-end. In addition, the committee likely desires to see the October employment report while avoiding action in such close proximity of the U.S. election," Barclays U.S. economists wrote in a research note late on Monday.

Federal funds futures for November delivery were unchanged at 99.5875 in early trading, suggesting traders placed about a 7 percent chance the U.S. central bank would increase the target range on its policy rate at this week's meeting, according to Reuters data.

The Fed has kept its fed funds target range at 0.25-0.50 percent since raising it for the first time in nearly a decade in December 2015.

While Nov. fed funds futures were little changed, deferred contracts were 0.5 to 1.5 basis points lower from Monday's close.

December fed funds implied traders saw about a 78 percent chance the Fed would raise interest rates at its Dec. 13-14 policy meeting, flat from Monday's close, according to CME Group's FedWatch program.

(Reporting by Richard Leong; Editing by Chizu Nomiyama)



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